Thursday, 18 August 2016

How Is Greece These Days?

The Sick Man of the West

Little over a year ago, Greece was in the news daily.  It was facing a severe economic crisis.  Having borrowed heavily to sustain a national lifestyle to which it was not entitled, the country was unable to meet its interest and capital repayments.  Greece's membership in the European Union was the fundamental cause of the problem.  It had been able to borrow vast amounts of money using the credit worthiness of much stronger European countries (such as Germany) since the EU (once Greece became a member)  now implicitly guaranteed Greece's loans.  Suddenly Greek debt became as "safe" an investment as lending to the German or the UK governments.

So Greece had been on a borrowing splurge.  But it could not pay the loans back, or even service them.  It turned once again to the EU to provide more funding, more borrowing.  The EU finally caved in, and turned on the money spigots once again, in exchange for more draconian financial disciplines.  Greece tightened its belt and groaned.

The emergency borrowing had the effect of kicking the can down the road until another day dawned.  We hear little these days of Greece and its fortunes.  But a recent article in the Guardian reminds us that the piper is still waiting to be paid.  Greece is going to come back to its EU masters in even worse shape.  When it does, it will become apparent that the UK did the smartest thing in a century when it voted in favour of Brexit.

In a side street in the heart of Athens, two siblings are hard at work. For the past year they have run their hairdressing business – an enterprise that was once located on a busy boulevard – out of a two-bedroom flat. The move was purely financial: last summer, as it became clear that Greeks would be hit by yet more austerity to foot the bill for saving their country from economic collapse, they realised their business would go bust if it continued operating legally.

“We did our sums and understood that staying put made no sense at all,” says one sibling. “If we didn’t [offer] receipts, if we avoided taxes and social security contributions, we could just about make ends meet.”

They are far from being alone. A year after debt-stricken Greece received its third financial rescue in the form of international funding worth €86bn, such survival techniques have become commonplace. For a middle class eviscerated by relentless rounds of cuts and tax rises – the price of the country’s ongoing struggle to avert bankruptcy – the draconian conditions attached to the latest bailout are invariably invoked in their defence. Measures ranging from the overhaul of the pension system to indirect duties – slapped on beer, fuel and almost everything in between – and a controversial increase in VAT are similarly cited by Greeks now reneging on loan repayments, property taxes and energy bills.
It is dawning on ordinary people that there is no way out.  Once they were foolish enough to think that snake oiled demagogues could save the country by waving magical wands.  Hope sprung eternal in Grecian breasts.  They refused to see, let alone read, the fine print of the deals made with the EU to roll their debt over, and take on more of the same.
Against a backdrop of monumental debt – €320bn, or 180% of GDP, the accumulation of decades of profligacy – fatalism is fast replacing pessimism on the streets. “Our country is doomed,” sighs Savvas Tzironis, summing up the mood. “Everything goes from bad to worse.”

Close to half a million Greeks are believed to have migrated since the crisis begun, thanks to the searing effect of persistent unemployment (at just under 24%, the highest in Europe) and an economy that has shed more than a third of its total output over the past six years. The nation has been assigned some €326bn in bailout loans since May 2010 – the biggest rescue programme in global financial history. Yet the fear that it is locked in an economic death spiral was given further credence last week when Eurobank analysts announced that consumption and exports had also fallen, by 6.4% and 7.2%, in the second quarter of the year.

The duration and depth of the recession is such that the World Bank now compares it to the slumps seen in eastern European countries in the early 1990s. The poorest 20% of Greece’s 11 million people have suffered a 42% drop in disposable income since 2009.

“If we continue down this road, a fourth, even a fifth, bailout should be expected,” says Aristides Hatzis, associate professor of law and economics at Athens University. “I don’t see any progress. The economy is stagnant, the private sector devastated, the public administration underfunded and ineffective. And there is always the spectre of Grexit at the end of the tunnel.”
The bailout merely postponed the inevitable collapse.  But not just postponed--the bailout meant that the inevitable collapse would be worse, much worse than if Greece had been allowed to go to the wall of national bankruptcy last year, and had been forced out of the European Union.  Now, more and more are regretting that decision of monumental hubris on the part of the EU to bail Greece out.
The 14 August bailout deal was meant to have put paid to [the spectre of Grexit]. Announcing the agreement after months of negotiations that not only brought Athens to the brink of euro exit but provoked the continent’s biggest existential crisis in recent times, EU commission president Jean-Claude Juncker chirpily announced that Greece was “irreversibly” part of the euro area. The 19-member currency bloc had “looked into the abyss”, but henceforth, he said, there was no looking back.

A year on, however, there are many who would argue otherwise. . . . “No economy can withstand endless recession and stagnation,” says George Pagoulatos, professor of European politics and economy at Athens University. “At some point there could be a change of preferences, with forces who would want to continue outside the euro,” he adds. “It is anyone’s bet what will happen if the economy doesn’t [exhibit] a strong recovery in 2017.”

But few believe it will get better before it gets worse. After promising to eradicate austerity, the once popular leftwing prime minister, Alexis Tsipras, is now a reviled figure.   Anti–EU sentiment is on the rise. In October, 70% thought it better for Greece to remain in the single currency; by July those backing the euro had fallen to 50%. Real recovery can only come if the country’s staggering debt burden is reduced. Without debt relief, the International Monetary Fund, which has yet to participate in the latest rescue, believes interest payments on the growing pile will account for 60% of the budget by 2060. In an excoriating review of its own role in the crisis, the IMF’s internal watchdog recently admitted to a litany of mistakes, including the failure to foresee the recessionary impact of austerity on an economy curtailed by corruption and vested interests. . . .

Almost all agree that last summer’s bailout simply kicks the can down the road – an art EU mandarins have mastered since Greece’s ordeal by financial collapse begun. Europe’s weakest link will face further tumult when the latest measures kick in this autumn and the Syriza-led government is forced to enact contentious employment reforms to secure a further €2.8bn in loans.

A year on and Greece, though quiet, remains as febrile as ever on the frontline of the euro storm.
Europe has a rotten heart.  Greece is a suppurating boil.  The future for the sick man of the West looks far worse now than it did a year ago. Things must be really bad when you read such articles in the Guardian, that most Europhile of rags.   But that probably misses their implicit point: doubtless the Guardian will be cheerleading for Greek debt to be written off and for the costs to be put to Germany's account.

That's how socialism works after all--expropriating other people's money, always.  Doubtless the Guardian will be arguing for Greek debts to be cancelled so that an entirely fresh round of lending might begin.

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